CAMBRIDGE – The meeting of G-20 finance ministers and central bank governors in Washington, DC last week concluded on a sour note. Small wonder: Global growth prospects have dimmed amid a variety of risks now emanating from both advanced and developing countries.

The meeting’s participants addressed – yet again – the need for greater policy coordination, more fiscal stimulus, and a variety of structural reforms. And that discussion has become more urgent, given the widespread view that monetary policy may not have much ammunition left, and that competitive devaluations would do more harm than good.

But with the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.

In the early stages of the financial crisis of 2008-2009, Kenneth Rogoff and I noted that recovery from severe financial crises are protracted affairs, as it takes time for households and firms to work down the debts accumulated during the boom. At the same time, banks, faced with a surge in nonperforming loans and compromised balance sheets, may be unable or hesitant to engage in new lending. Delays in cleaning up balance sheets are among the factors that impede recovery and make post-crisis recoveries different from typically sharper business-cycle rebounds.

In a follow-up study, we documented the trajectory of per capita income following the 100 worst financial crises since the 1860s. We found that it took a little more than seven years, on average, for the advanced economies (as they are defined today) to reach the pre-crisis level of income; the median recovery took about six years. The decline in per capita income from its peak at the onset of the crisis to its trough at the recession’s bottom averaged about 9.6% for this group. Crisis-related output collapses for emerging markets were worse.

How does the modern post-crisis experience compare to its historical counterparts? The International Monetary Fund’s latest World Economic Outlook, which offers projections for per capita GDP growth (among numerous other indicators) through 2021 for most of the world’s economies, facilitates the appraisal.

France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Portugal, Spain, the United Kingdom, and the United States all had systemic financial crises. Two of the 11 (Germany and the US) had a shorter road to recovery than the historical experience for the advanced economies. Ireland and the UK are next in recouping lost income (see table).

If the IMF projections are taken at face value, the median time it takes to reach the pre-crisis level of income for the 11-country group will be about nine years. By 2021, Greek and Italian per capita income will stand at about 14% and 9%, respectively, below their 2007 level. The Greek crisis, which is far from over, is tied for tenth place among the worst 100 historical crises.

Even setting aside the more charged and controversial restructuring of sovereign debt, the write-off of private debt incurred during the boom (often under a very rosy set of assumptions about borrowers’ future income and wealth) has been an integral part of the resolution of banking crises through much of known history. Notable exceptions include the “evergreening” of bank loans through the years in the aftermath of Japan’s crisis in the early 1990s and Europe’s ongoing crisis, which is fast approaching the decade mark.

The anemic recovery in many advanced economies (even when compared to other severe crises) owes much to the prevailing “extend and pretend” approach to debt. European banks since the crisis have largely been kept busy buying government debt and evergreening (in Ponzi-scheme fashion) private pre-crisis loans.

As difficult as the foreclosure episode was in the US, it enabled borrowers and banks to adapt to the collapse of the housing bubble and to move on. Earlier episodes, ranging from the Scandinavian crises of the early 1990s to the Asian crisis of 1997-1998, produced a much faster pace of deleveraging. One can only hope that China’s approach to dealing with its internal private and sub-sovereign debt does not adhere to the Japanese-eurozone timetable.

Is the US Dollar in a new bull market or is it about to crash? Opinions seem divided on this issue and mine is a mixture of both depending which time frame is used.Let's begin the analysis with the short term outlook followed by some big picture analysis.

US Dollar Index Daily Chart

The 3rd December 2015 high at 100.60 was pinpointed exactly in previous analysis produced the day before on the 2nd December 2015. This analysis outlined the expectation for a top and subsequent multi-month move down. I believe the first leg down is now complete and a bear rally is now in play.How high do I expect this bear rally to trade?The first rallies in new bear trends often make deep retracements as the bears mettle is fully tested. I have added Fibonacci retracement levels of the move down from December 2015 high to recent low and I am targeting price to get back to the 76.4% level at the minimum. This level stands at 98.95. The 88.6% level at 99.80 should also not be dismissed.The horizontal line denotes the January 2016 high of 99.95 which should offer solid resistance and I expect price to turn back down below this level. Price turning down just below this level would create a bearish double top with the trend and that setup would look very appealing to the bears.I have drawn a Fibonacci Fan from the December 2015 high to recent low and I am targeting this bear rally to top out around the 88.6% angle as so many first bear rallies do.I believe a 5 point broadening low is currently in progress with points 1 to 3 already in place. This bear rally will end with a point 4 high. It is possible for a lower high only to form below the point 2 high but that would be too easy. Price trading above the point 2 high of 98.59 will fool the crowd into thinking a new bull trend is in force and that is what the majority will need to believe before the next leg down commences. Also, moves into point 4 highs are often impulsive which is another market deception aimed at putting people on the wrong side. Once the point 4 high is in place then the downtrend should resume and eventually end with a point 5 low.The Bollinger Bands show price bouncing up and down between the upper and lower bands which is consistent with trend changes. I favour one last pullback back to at least the middle band before this bear rally really gets going.The RSI and MACD indicators both show multiple bullish divergences at this point 3 low and that adds confidence that a significant move higher is set to occur.So, the short term outlook appears bullish with clear target levels for the move up to terminate. That is, above 98.59 and below 99.95 with a bias closer to the latter number.Let's now go to the monthly chart to try and determine where the downtrend is likely to bottom out.

US Dollar Index Monthly Chart

The more I look at this chart the more bearish I become. When trying to forecast areas for where a trend may end, it is useful to think what is the absolute limit price can trade without breaking the overall technical picture. In this case, the expectation is for a higher low which would need to be above the March 2008 low of 70.80.The lower horizontal line denotes the May 2011 low at 72.86 and I view that as a solid low that price will not surpass.The three closely bunched horizontal lines denote previous swing lows set during the late 2012 to late 2013 period. My gut instinct tells me price needs to take out these levels as doing so would get the crowd turning bearish again and help price make one final whoosh into a major low.So, where exactly do I favour the higher low to form?I have added Fibonacci retracement levels of the move up from March 2008 high to December 2015 high. I believe that was the first major leg of big bull market and as such I now expect a deep correction. Hence, I am favouring the 76.4% level at 77.83 while the 88.6% level at 74.20 also has some potential. I personally favour closer to the latter level.Originally, I was favouring the 61.8% level at 82.18 and while price may bounce off that level I now favour any move higher from there will be temporary only.I have drawn a Fibonacci Fan from the March 2008 low to December 2015 high which shows price currently finding support at the 23.6% angle so a bounce up from here could be expected. I am targeting the 88.6% angle eventually to see in the higher low. This angle looks set to be just above the 88.6% Fibonacci retracement level during the middle of 2017 so that is some timing to watch for the higher low.The Bollinger Bands show price recently bouncing off the lower band and I favour price trading back above the middle band before the downtrend really takes hold. This is in line with the daily chart analysis.The RSI is currently looking weak and providing excellent conditions for the downtrend to get going shortly. Interestingly, this indicator showed a new high back in 2015 which is generally bullish for the longer term view. By that I mean once the higher low is in place then price should trade back up to new price highs while this indicator makes lower highs - bearish divergences. This will obviously take many, many months to untold.The MACD indicator also showed a bearish divergence at the recent high and is now bearish.So, we now have short term high and medium term low targets. What is price likely to do over the longer term once the expected higher low is in place? Let's go to the quarterly chart to try and answer that question.

US Dollar Index Quarterly Chart

The RSI shows a little bearish divergence at the recent high while the MACD indicator looks set to make a bearish crossover imminently.The Bollinger Bands show price starting to leave the upper band and I expect the higher low to be back down around the lower band.I have drawn a Fibonacci Fan from the 2001 high to 2008 low which shows some nice price symmetry. Price has recently traded marginally above the 76.4% angle but the support is look shaky and I favour a move back down to test support from the 61.8% angle and it is there where I favour the higher low to form. Once that higher low is in place then price should explode higher eventually taking out the 88.6% angle.Previously, my long term outlook called for a lower high below the 2001 high of 121.29. While this is certainly a possibility, my favoured scenario is that a massive 5 point broadening low is in play. This assumes the 1992 low is point 1, the 2001 high is point 2 and the 2008 low is point 3. That means price is currently tracing out its way to a point 4 high. This point 4 high will mark the end of the bull market that began in 2008.So, where is this point 4 high likely to be?Unfortunately, my trading software only has data going back to November 1985 which doesn't include the all time high set in February 1985 at 164.72. However, we can still calculate the Fibonacci retracement levels of the move down from that all time high to the 2008 low at 70.80. Let's run through the key levels.Keep in mind, for this pattern to play out the high needs to be above the point 2 high at 121.29.The 61.8% level stands at 128.84. I favour a more substantial break above the point 2 high so once again I will be targeting the 76.4% level which stands at 142.55. The 88.6% level stands at 154.01 but that just seems too high. Nope, we'll settle for a final bull market high around 142 in the years to come.Once that point 4 high is in place then a massive crash to a point 5 low will finally occur. That is the crash all the bears will have waited a decade for!I expect the point 4 bull market high will coincide with the US Dollar losing its reserve currency status. The end of an empire...

How does European humanitarianism become a road to moral surrender? In Germany, they’re beginning to find out. Jan Böhmermann is a German political satirist—think of a younger version of Jon Stewart—who, on his TV show last month, read aloud a lewd poem about Recep Tayyip Erdogan. The verse was replete with mocking references to the Turkish president’s anatomy, his alleged relations with farm animals, and his mistreatment of religious and ethnic minorities. Was it funny? My wife, who’s German, puts it in the category of “so puerile you laugh.” But Mr. Böhmermann had a serious point, explicitly framing his poem as an example of Schmähkritik, or abusive criticism, and therefore not necessarily protected by German law. His larger aim was to test the limits of free speech, much as the American comedian George Carlin did in the 1970s with his notorious “seven words you can’t say on TV.”The ploy succeeded too well. The Turkish foreign ministry made a formal request of the German government to prosecute Mr. Böhmermann under a Wilhelmine-era law (known as Section 103 and previously used by the Shah of Iran and Augusto Pinochet of Chile) forbidding insults against foreign leaders. Mr. Erdogan has also filed a private suit against the comedian, who is now under police protection in consideration of the recent fates of European satirists who ran afoul of Muslim sensitivities.None of this is surprising: The Turkish government is pursuing nearly 2,000 criminal cases against Turkish citizens accused of insulting Mr. Erdogan, some of which involve school-age children who posted material on Facebook.FB-2.54% Mr. Erdogan’s bodyguards also recently roughed up some demonstrators protesting him in Washington, D.C. It’s in the nature of political thuggery to recognize no boundaries, moral or territorial. It’s also in the nature of the liberal West constantly to seek an accommodation with the thugs. ZDF, the German public broadcaster that carries Mr. Böhmermann’s show, immediately pulled the offending clip from its website, though it promises to foot his legal bills. German Chancellor Angela Merkel told Turkish Prime Minister Ahmet Davutoglu that she found the poem “deliberately hurtful,” a comment her spokesman went out of his way to disclose.More damagingly, the chancellor allowed the criminal case to go forward when she had the legal authority to stop it, claiming the judiciary is where the matter rightly belongs while promising to repeal the law under which the suit was brought. This is supposed to be the height of pragmatism, a way of mollifying Mr. Erdogan even as it’s unlikely that a German court will impose much of a penalty on Mr. Böhmermann.But hiding behind judicial skirts does nothing to disguise Mrs. Merkel’s more craven calculation, which is her need to placate Mr. Erdogan after he agreed last month to keep refugees from flooding Europe through Turkey in exchange for billions in financial aid and visa-free travel for Turks in Europe. A deal is supposed to be a deal, but the Turkish president is not the sort to stay (politically) bribed. Hence the need to appease him in the coin of a comedian’s prosecution.What begins in small concessions of principle generally leads to greater concessions. Germany might soon repeal Section 103 and Mr. Böhmermann may well be vindicated in court. But by now Mr. Erdogan knows that nothing is so morally flexible as a Western politician desperate to avoid a tough choice, so expect him to find new avenues to impose his will, and his values, on a pliable Europe.That goes especially for Mrs. Merkel, who spent much of 2015 riding a wave of liberal congratulation (capped by being named Time’s Person of the Year) for her willingness to accept a million Mideastern refugees, no questions asked. Now those refugees, some of them ill-behaved, are provoking a political backlash of a sort that stirs uneasy German memories, and the chancellor needs the political easy way out from the consequences of her reckless humanitarianism. That turns out to mean a betrayal of the very liberal values she claims to champion. The larger question is how far Mrs. Merkel and other European leaders are willing to bend to the likes of Mr. Erdogan and other autocrats. The deal with Turkey, Der Spiegel noted this week, “is more than just a piece of paper to Merkel—it’s proof that the refugee crisis can be solved with means other than barbed wire.” But what does it say about Mrs. Merkel’s fitness as a political leader that she would sooner risk the free-speech rights of German citizens than tend to the necessary if sometimes ugly business of national self-preservation?To their credit, Germany’s left-leaning Social Democrats, who are in a coalition government with Mrs. Merkel’s Christian Democrats, have opposed her capitulation to Mr. Erdogan. In France, too, it is the Socialist Party of François Hollande and Manuel Valls that has been most clear-eyed about the need to stand firm for the core values of a secular state. In today’s Europe, that’s the key test of leadership, one that Mrs. Merkel is failing.

It is amazing to watch the markets. If oversupply makes the oil price sputter, deep pocket buyers prop it up against any commercial logic. When the S&P 500 appears to roll over, as earnings fall and ruthless CEO's ruin their companies with stock buy backs, the mysterious hand of "God" gives it a lift. And if exchange rates need a twist to give the worldwide currency wars a new direction, the global price control grid shows its worth of salt. The same goes for the gold price. Its US inspired, decade old price suppression is infamous. More and more banks are convicted of precious metal price manipulation but nobody goes to jail. The fines they pay are just the cost of doing business. Will this ever change?Banks manipulate the markets out of sheer greed to steal other people's property. In contrast government market manipulations show signs of insanity. Why would Japan try to debase its currency if its perceived "value" is all that separates it from bankruptcy? Why would the European Union cling to the Euro currency when it is evident that it has failed economically and that it will eventually also fail politically? Why would the United States support a price level of gold that will ultimately lead to the total depletion of official gold reserves of the Western World when gold is the only money they have to support their credit reserves called Federal Reserve Notes commonly known as the US Dollar?It appears that we have reached the decisive fork in the road of global market manipulation. The constant gold price suppression is exploited by more and more savvy investors who buy gold at a huge discount (a discount of at least 90 per cent if one adds the cost for off balance sheet items like pensions, health care and the future bail out of a largely insolvent banking system to the current oversupply of the world economy with credit reserves aka currency aka paper money). The scarcity of available physical gold has already ruined the reputation of the US gold market. COMEX gold reserves dropped below five tonnes backing up a market where within a week promises for thousands of tonnes of gold are traded.In 2015 buyers from India and China acquired more gold than annual world mine production. This year Western demand has picked up significantly whilst Asian demand stays strong. Central banks all over the world are buying as much gold as they can without attracting the wrath of the US authorities. The program directors of the Matrix are showing signs of desperation. We are told that gold is just a pet rock. That it has no yield. The British newspaper "Financial Times" linked it to human waste in one of their recent videos. Thankfully authors like Jim Rickards have addressed these fables brilliantly in their books.The elephant in the room that will bring these issues to a resolution is the debt mountain of this world. It is of Himalayan dimensions and threatens to crush the world economy. Estimates (in USD) range from a couple of hundred trillions to more than a quadrillion. Global leaders hope in vain that economic growth will lower it. Instead it keeps on rising and rising. They now face a stark and binary choice between two evils: bankruptcy or high inflation.The problem will become apparent when inflation is rising more visibly. This could happen when the deflationary forces of falling commodity prices wane. There could be other reasons like a loss of confidence in a government triggering a change in capital flows and/or the velocity of money. We could have a deflationary bust that destroys government finances and the purchasing power of the currency.Under normal circumstances central banks would be expected to raise interest rates when inflation exceeds their targets. Rising interest rates will lead to a drop in bond prices and create a black hole in the balance sheet of an already strained banking industry. They will increase deficits of over leveraged governments and undermine trust in their solvency and in the bond market. They will push pension funds, over indebted corporations and private households into default. They will strengthen approaching global recessionary forces.Central banks can not avoid this outcome even if they stay put. Most investors will refuse to hold or buy bonds with negative yields. They will not tolerate that the value of their investments is being eroded by inflation. They will turn to gold or other hard assets. To prevent bond markets from collapsing, central banks will have to print ever more money to prop up bond prices. Eventually they will be the only buyers in the market. The world will face a Weimar style scenario where central banks are forced to give up any pretense of preserving the value of the currency in order to supply their governments with liquidity. Hyperinflation will follow.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.